Would BioMarin Pharmaceutical (NASDAQ:BMRN) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for BioMarin Pharmaceutical

How Much Debt Does BioMarin Pharmaceutical Carry?

The chart below, which you can click on for greater detail, shows that BioMarin Pharmaceutical had US$1.08b in debt in March 2022; about the same as the year before. However, because it has a cash reserve of US$1.06b, its net debt is less, at about US$23.8m.

A Look At BioMarin Pharmaceutical's Liabilities

According to the last reported balance sheet, BioMarin Pharmaceutical had liabilities of US$490.4m due within 12 months, and liabilities of US$1.18b due beyond 12 months. Offsetting these obligations, it had cash of US$1.06b as well as receivables valued at US$430.1m due within 12 months. So it has liabilities totalling US$185.0m more than its cash and near-term receivables, combined.

Having regard to BioMarin Pharmaceutical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$14.6b company is short on cash, but still worth keeping an eye on the balance sheet. But either way, BioMarin Pharmaceutical has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if BioMarin Pharmaceutical can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year BioMarin Pharmaceutical's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, BioMarin Pharmaceutical had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$70m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of US$134m and the profit of US$39m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for BioMarin Pharmaceutical you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.